Determinants of Non-Performing Loan: The Case of Some Selected Private Commercial Banks in Ethiopia

This study empirically investigates the determinants of non-performing loans (NPLs) in selected private commercial banks in Ethiopia, focusing on both bank-specific and macroeconomic factors. Employing an explanatory research design with a quantitative approach, the study analyses panel data collected from twelve private commercial banks over a ten-year period from 2012 to 2021. Data analysis was conducted using EViews 10 software, incorporating descriptive statistics, correlation matrices, and multiple linear regression models with both fixed and random effects. The findings reveal that exchange rates exert a positive and statistically significant influence on NPLs. Conversely, income diversification, capital adequacy, loan growth rate, and the loan-to-asset ratio are found to have significant negative effects on NPLs. The study is limited in scope to private commercial banks, excluding public banks and non-bank financial institutions, and relies solely on secondary data, which may omit relevant qualitative factors. Future research could address these limitations by expanding the sample and incorporating primary data for a more comprehensive understanding. This study adds value by offering context-specific insights into the Ethiopian banking sector, filling gaps in existing research, and providing practical recommendations for policymakers and banking professionals to manage and reduce NPLs, thereby supporting financial stability in emerging economies.